India-bound funds may take a detour through Mauritius

Dubai: With India and the United Arab Emirates (UAE) amending their bilateral Double Taxation Avoidance Agreement (DTAA), foreign insitutional investors (FIIs) from the Gulf nation may now route their investments through Mauritius to minimize tax.

While individual investors in UAE will continue pouring money into India, the volume of funds from FIIs could be affected after the two countries amended the treaty in March during the India visit of UAE’s vice-president Sheikh Mohammed Bin Rashid Al Maktoum.

Institutions may now hesitate to park funds directly in India and instead route them through Mauritius, Dubai-based Barjeel Geojit Securities’ director K.V. Shamsudheen said. As per the India-Mauritius DTAA, investors do not have to pay capital gains tax. But as per the amendments in the agreement, gains arising on the sale of stocks within one year are now being taxed at 10%.

Long-term capital gains from sale of capital assets, other than listed securities, are now subject to 20% tax.

Short-term capital gains from the sale of shares, other than listed securities, shall be taxable at 30% for individuals and 40% for companies.

Individual investors, who put in a small amount of money through portfolio management accounts, have been doing this (paying the tax) for decades, said Evolvence Capital managing director Jay Jeganathan. “But it does negatively impact the institutional funds. I may (now) have to go through the same grind of Mauritius,” he said, adding “(but) Mauritius is a tried and tested route”.

Shamsudheen also said almost 70% of UAE investors in Indian stocks have been selling on a short-term basis, paying 10% capital gains tax and an additional 2% education “cess” and surcharge.